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Srom the Financial Times, April £8£7t) 



His Budget Amendment Will Defeat the Very Purpose For Which it Was 
Conceived, By Striking Directly at Those Who by Concentration of 
Nervous Energy Have Made Efficiency Spell Large Prof its— Simply a 
Tax on Experience and Administrative Capacity — Too Much Unfair 
Talk of Profiteers, When Industrial Canada Has Provided the War 
Funds and Other Affiliated Patriotic Requirements. 

(By T. Kelly Dckinson.) 

Sir Thomas White, by his extraordinary 
scheme of profit taxation, has simply put 
his hands on the throat of Canadian pro- 
ductive enterprise and if he does not squeeze 
the country's business to death, be will 
leave it with little or no vitality to meet 
the tremendous obligations which the 
country has entailed. 

In simple English, his taxation scheme is 
all wrong, and will have unfavorable ram- 
ifications which may not at the moment 
meet the casual eye. Before going further 
into this question, it may be necessary to 
refer to the all too-ready accusation that to 
criticise a war tax- is an unpatriotic act. 
That sort of thing comes altogether too 
glibly to the mouths of those who claim 
that because a company is prosperous it 
necessarily must be a blood-sucker and a 
betrayer of its country. T v e record of our 
industrial companies stands clear enough in 
the enormous contributions to war loans, 
Patriotic, Red Cross and other charitable 
funds. It is not too much to say that the 
success of the successive war loans was due 
very largely to the participation of our suc- 
cessful industrial companies. Therefore, let 
it go without saying that the owners of 
Canada's industrials are no less patriotic 
than the individual who deducts a ten dollar 
bill from his salary three or four times a 
year, for patriotic purposes. 

fyf/% objection to the 50 and 75 p.c, 
iimn/^is that it is not equitable. It 


discriminacR^rainst one small group of 
Canadian citizo 15irud leaves the great bulk 
severely alone. Stijt£h* „ man with an income 
of $5,000 or $10,000, or more, could pay $50 
or $100 a year to tht general funds of the 
nation, without seriously affecting his com- 
fort or his future, and th-ere are hundreds of 
thousands of men in Canada on such a sal- 
ary basis. The who/e nation should bear 
the burden of taxation, as it should bear 
the burden of trench fighting. 

Will Affect Production. 

The second objection is perhaps more 

It refers to the prospect of a very con- 
siderable reduction in ihe gross business of 
the country, not because our industrial 
leaders will in a spirit of reprisal deliber- 
ately curtail their output, but because the 
force of circumstances will bring this 

I have frequently referred to the fact that 
war orders are not in themselves a source 
of profit. The profit in most cases is 
secured by efficiency and ceaseless applica- 
tion of executive and departmental heads. 
Now, there is a psycnology in this form of 
application which" has a very practical side. 
It is seen to-day in the broken health, the 
shattered nerves, of those so-called "profit- 
eers. "The intensity of high-speed operations 
has not only reduced costs and provided 
profits, but it has sapped the energy of our 
industrial workers. There was an incentive 
— there were two incentives: Pi'ide in na- 
tional service, and satisfaction in the pro- 
fits that a steady application produced. 


Is it reasonable to expect these executive 
officers to continue the prevailing policy of 
-eternal grind, -even on patriotic (that much 
abused word) grounds, if the Government 
is to take any way from 50 to 75* p.c. of the 
net profits? 

The impulse behind the great industrial 
activities of the past two years will be re- 
moved, and with whta result? A very much 
reduced productive energy (and Sir Thomas 
White never tires of preaching Production 
— "and more Production") which will sub- 
stantially reduce the whole buying power 
of the country? A reduced production 
means reduced exports, and naturally a 
heavy shrinkage in new money from abroad. 
That is where the 50 and 75 p.c. profit tax 
is going to hit the country. 

Big Share Already. 

I would suggest t« anyone who is inclined 
to disbelieve the statement that Canadian 
companies have not been remiss in their 
duty towards national financial require- 
ments to look up the recent fites of the 
Financial Times or any other Newspaper 
and check off the contribution-^ °*. compan- 
ies and their executive offi^1p#^it will be 
found that the bulk of Uj(Proneys received 
in the country by Sir -flomas White on be- 
half of war loans, and other special war 
appeals has been provided by the so-called 
profiteers. Through a hundred and one other 
channels the revenue, secured by industrial 
Canada has gone into war funds. It is clear, 
therefore, that Sir Thomas White and his 
Government have enjoyed all the privileges 
of the profiteer without the accompanying 
risk of capital or waste of energy. 

It would seem that if this extreme taxa- 
tion scheme is persisted in, and production 
is consequently lessened, there will be a 
smaller source from whence to draw the 
additional funds required for war purposes. 
Less money will come to this couuntry be- 
cause we will be sending fewer goods out 
of the country. Under the original profit 
taxation of 25 p.c, after 7 p.c. dividend al- 
lowance, the companies coming under the 
operation of this act could still see some 
daylight ahead of them, and consequently 
their whole energies were concentrated upon 
bulk output and gross income. If this were 
not a direct benefit to the country at large, 
and indirectly to the Government, then the 
success of the Government financing dur- 
ing 1915 and 1916 will have to be explained 
in some other way. 

Hits the Paper Industry. 

The paper industry will be very seriously 
affected by this profit tax amendment, ow- 
ing to the fact that the companies are at 
present earning a very large percentage on 

their capital employed. It may be asked 
why should a paper company pay some 50 
to 75 p.c. of its profits as war taxation, 
when such profits have come entirely 
through American channels, and have been 
only remotely associated with war condi- 
tions? The extraordinaray prosperity in 
the United States has created an abnormal 
demand for the product of Canadian pulp 
mills, and as the demand has been very 
much greater than the available supply, 
prices have consequently advanced at a high 

Canada has been pathetically slow in de- 
veloping what should years ago have been 
a great national industry, but when once 
started in this line of manufacture there 
can be no doubt of the determination of .our 
capitalists to make Canada the largest 
paper producer in the world. 

What do we find to-day? We find that 
just as the manufacturers have attained a 
long coveted connection with foreign buy- 
ers, after a period when their nose was too 
close to the grindstone to be comfortable, 
they are asked to give an absurd proportion 
of legitimate profits, the larger portion of 
which should be used to cultivate a future 

foreign business, to the Government! 


Much the same consideration applies to 
other manufacturers who have been con- 
serving their resources with the object of 
maintaining Canada's favorable balance of 
trade when war is over. 

The abnormal profit taxation will pre- 
vent entirely the, inflow of American indus- 
trial companies. It was thought that an 
Imperial Preferential tariff would bring 
American houses to Canada, but such a tax 
as proposed by the Finance Minister will in- 
definietly postpone this movement. 

Not One Good Feature. 

There is not a single good feature about 
the budget amendment. By its very ex- 
cesses it will defeat the purpose at 
which it aims, as there are a great many 
more companies who are operating on the 
30 to 50 p.c. profit basis, on strictly legiti- 
mate lines, than is generally realized by the 
public. It surely should not be a crime for 
a company to make even a 100 p.c. profit, 
if such profit is accomplished by the appli- 
cation of business enterprise and courage. 
If such a profit represents a crime against 
the nation, then the margin of profit ob- 
tained to-day by the farmers of Canada 
would justify the hanging, drawing and 
quartering of every farmer who sells his 
product, normally valued at 80c, at $2.40 a 

If Sir Thomas White wants a percentage 
of m war profits he should take that percen- 
tage from all war profits. 

(From the Financial Times, May 5t7i) 


Action Must Be Quickly Taken to Offset the Tendency to Cancel Machinery 
and Installation Orders by Canadian and American Firms — One Mont- 
real Firm Withdraws $1,000,000 Outlay on Additional Plant — An 
American Firm Cancels Plans lo Erect $2,500,000 Plant Here, Em- 
ploying 2,500 Men, and Another Firm Cancels Large Order for Lathes 
to Replace Worn Out Machinery- -A Serious Blow at Canada's Whole 
Buying Position — Affecting Labor and Capital Alike. 

(By T. Kelly Dickinson.) 

The eyes of the whole business community 
of Canada are fixed steadfastly upon the im- 
posing figure of Sir Thomas White, Minister 
of Finance. It is not alone the company 
that will be subjected to the abnormal tax 
proposal that is looking for a very consider- 
able modification of the proposed taxation, 
but every man who has the interests of the 
country at heart is praying rervently for 
some change in the Ministers policy. Both 
the manufacturer and the wage-earner, not 
to say the wholesaler and retailer, are 
vitally concerned in the tax which, if put 
into law, will so materially reduce the pro- 
ductive capacity of the Dominion. 

As I stated in my last week's article, the 
ramifications of this proposed tax will be 
found to be almost beyond calculation. 
During the past week I have had absolute 
evidence of the process of curtailed produc- 
tion. There is one case where a company, 
with head offices in Montreal, had provided, 
through an American banking firm, for the 
outlay of $1 000,000 for a much-needed ex- 
tension to its present plant. The day after 
the announcement of the 50 and 75 p.c. 
profit taxation the directors held a special 
meeting and decided indefinitely to suspend 
this constructive operation. 

This $1,000,000 cash appropriation would 
have represented not only the expenditure 
of that money on account of new machinery 

made in Canada, but it would have given 
employment to several hundred workmen 
during the constructive period. When com- 
pleted it would maintain a permanent staff 
of from 100 to 150 workers. Let me empha- 
size the fact that this company is not oper- 
ating on war orders, and that it was prepar- 
ing to provide a maximum capacity such as 
would permit the management to compete 
with American houses for European trade 
after the war. 

TJ. S. Firm Stops Work. 

Another unfavorable development of 
which I have positive information was the 
determination of a large American industrial 
company to build a subsidiary plant in 
Canada. The first cash appropriation al- 
lowed by the American directors on behalf 
of their Canadian subsidiary amounted to 
no less a sum than $2,500,000. This plant, 
whei completed, would have provided em- 
ployment for between 2,000 and 2,500 men. 
When the Finance Minister's 50 and 75 p.c. 
taxation scheme was announced the Ameri- 
can executive telegraphed the Canadian 
representative that the deal was off, and to 
advise the owners of the site on which the 
property was to be erected that the option 
on the property would, not be exercised. 

That is the way to kill the goose before 
it has a chance even to build a nest wherein 
to lay its golden eggs. 

It also emphasizes the point that the ram- 
ifications of this unfavorable taxation are 
greater than appear on the surface. The 
owner of this particular real estate, for in- 
stance, will continue to hold his barren 
land, although there may be some consola- 
tion in the knowledge that this land may be 

turned over for the cultivation of cabbages 
and peas, and that the excess profits on the 
same will still be available, for Governmnt 

Yet another firm, which had contracted 
for a number of new lathes to replace the 
lathes more or less worn out, decided to 
cancel the order and endeavor to do the 
best it could with the impaired and worn out 
machinery. Even the lay mind will have 
no difficulty in grasping the significance of 
this extraordinary change Oi industrial 
policy. Even the lay mind will immediately 
realize that it means less production, im- 
paired efficiency, and, consequently, a 
smaller pay roll and a reduced buying power 
for the country. 

Tax on Enterprise — An Example. 

I would like again to draw the attention 
of Sir Thomas White to the fact that a tax 
on excess profits is a tax on enterprise. 
This is no mere figure of speech. On Satur- 
day night last, I had a long-distance call 
from a manufacturer operating about 100 
miles from Montreal. This gentleman 
stated that he heartily endorsed the view- 
point of The Financial Times on this taxa- 
tion question. He said that last year his 
company had made a profit of 175 p.c. on 
its capital, but added that the capital of the 
company was extremely small, and that in 
normal periods they were able to earn 30 to 
40 p.c. on the small capital. That the huge 
(on p.c. basis) profit of last year was not 
made through high prices for the firm's 
commodity, but by sheer individual applica- 
tion to the work, may be seen in the fact 
that before the war the company operated 
its plant on a basis of 55 hours per week, 
while for the past two years the plant has 
been running 24 hours a day with the ex- 
ception of Sunday. There is a big differ- 
ence between 55 hours and 144 hours, and 
it illustrates the point that profits to-day ar^ 
being made by strict application. 

In the above case the company actually i^ 
selling its product below the price paid for 
a similar product in England. 

What is the Answor? 

Another company, in the same district as 
the company mentioned above, is operating 
on the same product at the same price, and 
is earning not more than 15 p.c. on its cap- 
ital. What is. the answer? The answer is, 
that the man who lives on the lathe, and 
sweats blood in the desire for an increased 
national production, who pulls down his 
overhead by building up a great bulk but- 
put, is penalized for his pains, while the 
other man, perhaps on account of some per- 
sonal deficiency, makes just enough to makp 
life comfortable, yet adds .little to the pay- 
roll or the export trade of the country, and 

has no worries about 50 and 75 p.c. surgical 

A Gas Attack at Ottawa. 

It is unfortunate that not one criticism 
has been raised in Parliament against the 
tax, in the Budget discussion. The import- 
ant issue has been befogged at Ottawa by 
the elevating but futile controversy on Free 
Wheat. The Opposition wanted Free Wheat, 
but are annoyed because the Government 
stole their Thunder. It may be good politics 
(if there is such a thing as "good politics") 
but it is rotten tactics to make a gas attack 
on the flanks when the centre of our strong 
economic position is so seriously threatened. 

Profits and Empire Finance. 

Sir Thomas White has done magnificent 
work for the Dominion of Canada. He has 
been able to borrow in New York at will, he 
has been able to borrow $200,000,000 from 
the people of Canada, he N has been able to 
give to Great Britain a credit of $200,000,000, 
and he had a huge revenue from Canada by 
way of direct and indirect taxation. 

This tremendous achievement, especially 
our home loans and our credits for Mother 
England, was due entirely to the enormous 
supply of foreign money which went into 
general circulation through the 24-hour- 
working-day operations. If this profit tax 
is the means of reducing the working day to 
one or two shifts, it is easily seen how the 
reduced payroll and the reduced require- 
ments of raw material will affect the buying 
power of the country! 

Will Cost Us $200,000,000. 

It is no exaggeration to say that the 50 
and 75 p.c. excess profit tax will affect the 
buying power of Canada to the extent of at 
least $200 000,000 a year, which figure in- 
cludes the loss of the proposed American 
factories on this side of the line. Sir Thomas 
White has an opportunity to save this money 
for Canada. If, on the other hand, he in- 
sists on his 50 and 75 p.c. taxation he wiU 
be compelled to reduce his estimate of na- 
tional revenue, whereas, if he. with the 
strength that we know is in him decides to 
let well enough alone, and take his 25 p.c. 
tax on excess profits, he will find that Cana- 
dian and American manufacturers will not 
be compelled to readjust their plans for the 
present and after-the-war trade develop- 
ment. He has everything to lose by insist- 
ing on the present unreasonable tax. He 
and his country have everything to gain by 
removing this taxation, and thus allowing 
the country to consolidate its financial posi- 
tion, so as the better to be able to meet ou- 
increased fixed charges, our pensions, and 
our desire to be a nation, and with the na- 
tions stand. 

(From the Financial Times, May 5th) 


Chartered Accountant Points Out 
That Resolution Implies That Pro- 
fits Are in Cash and Readily Avail- 
able, Which is Not the Case as Any 
Balance Sheet Will Show — Likely 
to Increase Borrowing. 

Editor, Financial Times: 

Sir: — The increased tax on profits, as 
promulgated in a resolution amending the 
Business Profits War Tax Act of 1916, ap- 
pears to me to be open to serious criticism 
in two respects, and I make this criticism 
with due regard to my patriotic duty. 

1. The resolution implies that all busi- 
nesses earning profits in excess of 20% are 
necessarily doing so because of the muni- 
tions and other war supply business circu- 
lating in the country. As a matter of posi- 
tive fact, outside of the large and water- 
logged corporations, the average medium- 
sized business was earning more than 
twenty per cent, upon its capital actually 
invested' before the war. 

In order equitably to tax the excess pro- 
fits being earned because of war conditions, 
the proper method would be to take the 
average net profits during a series of years 
before the war, allow this amount as an 
exemption, and then take a fair proportion 
of the balance consistent with the demands 
made upon all producers. 

2. The resolution also implies that the 
larger portion of all profits is carried in cash 
or easily realizable investments. In gen- 
eral, a business whose output remains more 
or Less stationary, does not earn more than 
an ordinary return on its capital investment. 
It will be admitted that, generally, a busi- 
ness earning large profits does so because 
of expanding output, and that these profits 
normally are represented by an increase in 
working or fixed assets other than cash be- 
cause of this expansion. In other words, 
to meet the expanding trade, the profits be- 
come surplus invested in the business. A 
study of any balance sheet will demonstrate 
this poinl. The majority of our businesses 
have been built to large proportions because 
of this constant accretion of profits. 

Nov/ the effect of this excess profits tax 

will be to cause many firms to borrow money 
with wLich to pay the government! It is a 
really serious situation that denudes the 
business of its cash working capital. How 
can business men follow the advice of the 
Finance Minister "Provide for the depression 
coming after the war," and at the same time 
be taxed to the extent of all their cash re- 
sources? Yours, etc., 

A. E. Middleton Hope, C.A. 


Editor, Financial Times: 

Sir: — Apropos of your strong article on 
the profit taxation amendment, it is some- 
what inconsistent for the Finance Minister 
to go to such pains to impress upon the 
Canadian public the necessity of conserving 
their resources, while at the same time he 
proposes placing a burden on the success- 
ful enterprises of the country which hinders 
them from doing exactly what he advises 
should be done. You are right in saying 
chat the proposed taxation will affect the 
productive capacity of the country. My own 
company, for instance, has decided to can- 
cel the expenditure of $250,000 on new 
equipment, which money would have been 
expended among contractors, machinery 
manufacturers, lumber firms, and of course 
among a large number of working men. It 
would also give steady employment, on the 
completion or the plant, to about 150 men 
and women, and, 1 may add, this -expendi- 
aire was not proposed to meet war condi- 
tions, but rather to put the company in 
shape to meet the export trade when peace 
is declared. I enclose my card, 
Yours, etc., 



The retroactive provision of the amended 
excess profits taxation is also another fea- 
ture which appears not to have been given 
mature consideration. Many firms had ar- 
ranged extensions to plant and had paid in- 
terim dividends, and in other ways absorbed 
a large bulk of the available profits. In 
such cases these companies may be com- 
pelled to borrow from the banks to pay the 
profits taxation — a most undesirable contin- 
gency in the circumstances. 

Other firms have put a large proportion 
of their profits into raw material, in order 
not to be caught napping on a rising market, 
with large contracts for specific delivery 
dates. If due notice had been .given of the 
new taxes the companies would not have 
expended the available excess profits on 
new machinery, raw material and interim 
dividends. They would have conserved 
their resources and'the expenditure of these 
funds would not have gone into general cir- 
culation. As it is they have eaten their 
cake and the Finance Minister wants it. 

(Editorial from the Financial Times, April 2Sth) 

The Budget brought down by Sir Thomas 
White this week is not a pleasant document. 
In 1915, when it was generally believed that 
the war would not be a very long affair, and 
when the embarrassments of the Dominion 
Exchequer were chiefly due to nothing more 
serious than a temporary and natural falling 
off in imports and therefore in imports du- 
ties, the Government enacted a number of 
small taxes upon various phases of business 
activity and there was no great objection 
raised because it was felt that both the sit- 
uation and the expedients were temporary. 

By 1916 the effect of war orders was be- 
ginning to be visible in the shape of large 
profits in certain well-managed and enter- 
prising companies, and the Finance Minis- 
ter, leaving all his other temporary expe- 
dients in force, added to them the further 
expedient of a special tax of 25 p.c. of 
profits above the limit of 7 p.c. on invested 
capital. That this was an extremely rough- 
and-ready way of raising money was pointed 
out at the time, but again it passed without 
violent criticism on the ground that it was 
once more a temporary expedient and that 
those who paid it would still retain a sub- 
stantial reward for their enterprise, courage 
and ability. Now in the third year of the 
war, with a not unlikely prospect of its con- 
tinuance for another two or three years to 
come, the Finance Minister, still leaving in 
force his earlier expedients and still evading 
the task of radically reorganizing the basis 
of taxation, has merely added to his de- 
mands upon those who happen to be suc- 
cessful a further demand which takes away 
from them all but one-quarter of whatever 
they may be able to earn this year over 
and above 20 p.c. on their investment. 

We de not propose to enter upon a defence 
of, or an appeal for sympathy for, those 
concerns which are making profits of 15 
and 20 p.c. upon the capital employed. In 
certain lines of business, involving large 
fluctuations and extreme risks, such profits 
are by no means an excessive reward for 
the speculator who puts his money and his 
brains into them. There is this radical dif- 
ference between Sir Thomas White's 
measure and that which is in force in Great 
Britain, that the British' Act exempts,, not an 
arbitrary 7 p.c, but a profit allowance bas- 
ed upon the two best of the three preceding 
years, so that the taxed corporation is as- 
sured of a normal profit corresponding to 
the nature of its business, before the Ex- 
cess Profits Tax comes into force at all. 

But to our mind the gravest objection to 
Sir Thomas' present proposal is not that it 

bears hardly (and, in the absence of any 
general scheme for taxing, non-cdrporate 
earnings, very unjustly) upon certain com- 
panies and certain fluctuating industries. It 
is a much more serious objection than that. 
It is that it takes away all financial incen- 
tive to abnormal effort, to high-pressure 
production, to maximum efficiency in the 
use of a given amount of plant and equip- 
ment. It will therefore inevitably work to- 
wards the curtailment of the total volume of 
production (almost wholly concerned with 
commodities of use on warfare) in the in- 
dustrial establishments of Canada. It will 
reduce profits; but, far more than profits, 
it will reduce the volume of turn-over, the 
payroll of wages and salaries, the movement 
of freight on the railways, and last but not 
least that stupendous export balance of 
trade which has been the salvation of Can- 
ada during the last two years. 

Large profits at the present time are be- 
ing made by the operating of plant for 
twenty-four hours a day, at its highest effi- 
ciency, thus giving, as compared with ordin- 
ary times and ordinary methods, an im- 
mensely increased volume of output with no 
increase in overhead costs. There is no need 
to waste space in elaborating the point that 
this maximum output is in the highest de- 
gree beneficial to the workmen, the trans- 
portation interests, the tradesmen^ the banks 
and even the Exchequer of Canada, and to 
the cause of the Allies, as well as to the 
owner of the plant himself. It is obvious 
to the meanest intelligence, although some 
intelligences are very mean. 

There are certain risks and certain dis- 
advantages about this high-pressure busi- 
ness which have not been too greatly com- 
pensated by the three-quarters share of ex- 
cess profits left by the old legislation, and 
will certainly not be outweighed by the one- 
quarter share which is all Sir Thomas now 
allows. Only those familiar with industrial 
operations can realize the tremendous strain 
upon all parts of the organization which is 
involved in keeping up the full capacity of 
a plant going for 24 hours a day— or as near 
to it as the nature of the business will al- 
low. There are special risks attendant upon 
this 100 p.c. output. The slightest hitch in 
any one of a long series of operations may 
mean the holding up of every other depart- 
ment and a heavy loss in internal delays, 
to say nothing of possible penalties for non- 
delivery, and the inevitable dissatisfaction 
of customers. Moreover all risks in indus- 
trial business are proportioned to the turn- 
over, not to the capital employed, and there 


is small inducement to double the turnover 
and double the risk, if the company is going 
to bear all the loss and. the Government is 
going to grab three-quarters of the gain. 

We do not know what amount the Gov- 
ernment will derive from this 50 and 75 p.c. 
supertax; we do not suppose the Govern- 
ment has any very clear ideas on the sub- 
jest itself. Probably the amount will not ex- 
ceed a few million dollars. It appears to us 
extremely likely that if the Government col- 
lects five million dollars by this method :'t 
will at the same time be discouraging pro- 
duction amounting to hundreds of millions; 
for in effect we believe that the Government 
is taking away from Canadian industrial 
operators all inducement to book business 
in excess of what may be needed to produce 
15 p.c. on the capital allowed them by the 

(Editorial from the Financial Timet), May 5£7i) 


Every one of the grave defects inherent 
in the original 25 p.c. Excess Profits Tax, 
which The Financial Times pointed out last 
year while tolerating the 25 p.c. tax as a 
means of raising revenue in an emergency, 
is retained and multiplied many times over 
in the new 50 and 75 p.c. measure which is 
now proposed by the Finance Minister. 
The retroactive feature, a most pernicious 
feature of any legislation, is in full force in 
the new law, with this tremendous differ- 
ence, that whereas a 25 p.c. retroactive tax 
is likely to find its victim with at least that 
much, or nearly that much, of his profits 
still undistributed and uninvested and there- 
fore available for payment to the Treasury, 
a 75 p.c. tax on profits already collected is 
absolutely certain to fall on companies 
which have nothing like that proportion of 
their profits in cash or liquid reserves. Pro- 
fits to-day are the result of expanded busi- 
ness, and expanded business means heavy 
buying of raw materials to guard against 
rising prices. Falling as it does on profits 
made in any fiscal period ending after De- 
cember 31, 1916, it strikes the already com- 
pleted or almost completed years of those 
numerous companies which make up their 
accounts between January 1 and June 30; 
and it gives to their competitors whose 
fiscal years are only just begun an undue 
advantage in enabling them to adjust their 
business for the rest of the year with an eye 
to this astounding tax. 

Advocates of "squeezing the profiteers" 
will doubtless make capital out of the fact 
that the British Government has raised its 
Excess Profits Tax from 60 to 80 p.c. But 
as we have repeatedly pointed out, the Brit 
ish Government has taken proper precau 

tions to ensure that what is taxed shall be 
really excess profits, whereas the Canadian 
Government has done nothing of the kind, 
in Great Britain exemption is accorded to 
tne average profits of the best two years out 
of the preceding three years, thus ensuring 
that the company or partnership will be 
permitted to pocket profits on the scale to 
which it is accustomed in good years, no 
matter whether that scale be 7 p.c. or 
20 p.c. or 50 p c. Since our last issue 
several instances have been brought to our 
notice of Canadian companies which have 
been accustomed in good years to make 
profits well in excess of 20 p.c, and ara 
entitled to such profits either on account of 
the risky character of the business or the 
personal efforts put into it by officers who 
are large shareholders (in many cases the 
only shareholders) and who have preferred 
to look to the dividends or the enhanced 
value of the property as their reward, rather 
than to demand a salary proportioned to 
their efforts and abilities. In England such 
concerns are properly protected; in Canada 
they are treated as if they were entitled to 
no more profits than, say, an old-established, 
absolutely safe,, self-running public utility. 

Most taxes on business, when equitably 
distributed, have little effect upon anybody 
but the ultimate consumer, because they 
correspond roughly to the volume of output, 
and if they penalise anybody it is rather the 
incompetent producer whose lower volume 
of output gives him less opportunity to 
charge the tax to the consumer. But this 
tax is a direct blow at the most efficient pro- 
ducers in the country, the men who are 
turning out the greatest volume of goods 
with the least amount of capital. Its effect 
(so far as it is not merely a confiscation of 
profits already earned) will be one of two 
things: either they will cut down their out- 
put to the point where they will cease to 
come under exorbitant taxation, or they will 
if possible increase the price of their com- 
modity so as to recoup themselves for the 
increased tax. In the great majority of 
cases these companies are selling either to 
the Canadian Government or for export, and 
cannot make any material alteration in 
prices; in these cases there will simply be 
a reduction of the total volume of produc- 
tion in the country. In cases where the 
taxed companies are in a position to raise 
the market price, that is to say in cases 
where the Canadian people are the consum- 
ers, the price will probably be raised; but 
it will be raised not merely on the output of 
the taxed or efficient companies., but also on 
that of the whole group of less efficient 
companies in the same line of industry, 
whose profits will be enhanced at the ex- 
pense of the people of Canada without ne- 
cessarily requiring them to pay any more 
taxes to the Dominion Exchequer. Political- 
ly this may be a very clever, not to say 

Machiavellian, device, for it lines up the 
whale army of the less efficient in favor of 
the tax which falls exclusively on their 
abler brethren. Economically it is as per- 
nicious as a tax can possibly be. 

(Editorial from the Financial Times, May 12th) 

There appears to be an erroneous impres- 
sion abroad that the Excess Profits Tax 
now proposed by the Dominion Government 
is simply a tax on "Big Business," and "Big 
Business," as is well known, receives no 
sympathy from anybody. It is important, 
therefore, to make it clear that the new tax 
will fall much more heavily, and much more 
destructively, upon those "small businesses" 
which owe their success to their small cap- 
italization and the personal efforts of their 
owners, than it will upon the great corpora- 

In the case of the great corporations, the 
exemption of 7 p.c. upon the capital actually 
employed does really represent something 
like the normal earning power of that capital, 
and in cases where profits on a much larger 
scale are being made it is, broadly speaking, 
true that they are abnormal, and would be 
taxed under the more correct British theory 
of excess profits taxation as well as under the 
ill-considered Canadian definition of , the 
same. We do not argue from this fact that 
in the case of large corporations a confiscat- 
tory tax upon such profits after they are 
made, accounted and expended is either just 
or wise; but it is a tax upon excess profits in 
the proper acceptance of the term. 

But there are scores and scores of business 
enterprises, employing the bare $50,000 or 
but little over it in many instances, whose 
exemption is in no wise proportionate to their 
normal earning power. Our attention has 
been drawn to a number of such firms or 
companies during the last two weeks, and 
they are typical of a great number more whose 
owners are remaining silent because they fear 
to incur the enmity of Great Persons by 
speaking out. These small companies, 
usually family affairs or the outgrowth of 
private partnerships, have never had any 
reason to make their visible capital any larger 
than the most conservative estimate would 
make it. Their plants and properties, un- 
like those sold to new corporations with a 
view to flotation among the public, were 
transferred at a rock-bottom valuation. 
There is nothing in their assets for goodwill, 

or for the acquisition of services, or for trade- 
marks or contracts. Their salary lists, as 
has already been pointed out in these 
columns, are abnormally low, because the 
most valuable employees are themselves, 
with their families, the owners of most of the 
stock, and prefer to take what they make in 
dividends or even in accretions to the value 
of the stock which they own. In such com- 
panies, profits of 20 p.c. instead of being 
Excess Profits and properly liable to taxation 
on Excess Profits, are merely a normal reward 
of the energy and experience of those who 
make them. To take away one-half of part 
of these profits and three-quarters of another 
part is not merely imposing upon them a 
most undeserved burden, but is unfairly 
handicapping them in competition with com- 
panies less efficiently operated, less con- 
servatively capitalized, or just sufficiently 
smaller to bring them below the $50,000 

These companies are not "Big Business." 
They are small businesses, the kind of busi- 
nesses built up by one man, or a couple of 
brothers, or two or three partners, with am- 
bition, energy, foresight, and the willingness 
to work hard for a number of years and draw 
small incomes in order to lay the foundations 
of future power and fortune. They are the 
businesses which have made Canada what 
she is today. The Finance Minister proposes 
to make them pay for the war, while the 
man who, instead of putting his strength and 
brains into the building up of business for the 
future, merely collects all he can get for his 
services from year to year and spends the 
resultant income in high living and^unpro- 
ductive display is to be allowed to go scot 
free, because, forsooth, "profits" are easy to 
tax and "income" is not. 

(From the Financial Times, May 12th) 


Little Elementary Economics for 
Toronto Daily Star, re Overhead. 


(Toronto Daily Star). 

"The Financial Times of Montreal contin- 
ues its vigorous attack on the new war 
taxes. In Saturday's issue, besides a long 
editorial and a special front page article by 
Mr. T. Kelly Dickinson, president of The 
Times Company, there is a whole page of 
original and contributed matter. Munitions 
of war are being lavishly expended. 

The main argument is that the taxes will 

discourage enterprise. Mr. Dickinson refers 
to the case of a company which last year 
made 175 p.c. profit on its capital. The cap- 
ital was small, and in normal periods the 
profits were from 30 to 40 p.c. The profits 
of last year, it is said, were made, not by 
high prices, but by "sheer individual appli- 
cation to the work." Before the war the 
company operated its plant 55 hours a week; 
it is now running 24 hours a day, except 

Let us examine this case. Why should an 
increase in the hours of labor result in in- 
creasing profits five-fold? One can, of 
course, understand an increase in the vol- 
ume of business, but if the price has not 
been increased, why this huge multiplication 
of profits? 

The answer must be that while more men 
are working and working harder, neither 
the wage bill nor the other expenses of the 
concern are growing anything like as fast as 
the return in profits. The whole of the 
extra profits, 135 or 145 p.c, are easy 

What is meant by "sheer application"? 
The sheer application which increase? pro- 
duction is that of the workmen and salaried 
officers of the company. But evidently they 
are not getting the money, or the margin of 
profit would not be so large. The profit goes 
to the profiteers, who grow rich on the labor 
and skill of others. 

Capital which will not enter Canada ex- 
cept by promises of such huge profits will 
have to stay away. They are not an incentive 
to industry, but a temptation to laziness and 
greed. It is the man who makes moderate 
profits who works hard to put his business 
on a paying basis. 

Furthermore, if such profits can be made 
out of war supplies, or out of any kind of 
industry, it would be well for the Govern- 
ment to consider operating them, so that the 
people may either receive the return, or 
obtain the goods at a reduced price. The 
policy we ought to aim at in this country is 
the encouragement of industries which pay 
good wages, charge moderate prices, and are 
satisfied with moderate profits. Every dollar 
of excessive profits is a public loss. It 
means money wasted instead of being used 
in production. It means the building up of 
huge fortunes, and the encouragement of 
senseless luxury and ostentation. In useless- 
ness and mischievousness, it is economically 
of a piece with gambling. 

EDITOR'S NOTE : The Toronto Daily Star 
asks, and its entire editorial is based on the 
question: "Why should an increase in the 
hours of labor result in increasing profits 
five-fold?" The answer is almost too ele 
mentary to waste time over, but here it is 
in as few words as possible:- Keeping the 
capital investment occupied 24 hours a day 

instead of 8 hours, enables a company to 
produce three or even five times more than 
its normal output, without any increase in 
the overhead. If the Toronto Star were pub- 
lishing a morning newspaper as well as 
its evening edition, it would quickly see 
how its overhead charges on the evening 
edition would be reduced perhaps as much 
as 50 to 60 p.c. Again, if the Toronto Star 
were running its newspaper presses (which 
probably entailed a capital investment of 
$50,000) for 24 hours a day instead of only 
2 hours in the afternoon, what would be the 
condition of the newspaper's treasury? It 
would be right in line for the Finance Min- 
ister's 75 p.c. profit extraction. And that is 
too awful to contemplate. If this is not 
clear enough we will be pleased to send our 
office boy to Toronto to go further into the 
matter. ' 

(From the Financial Times, May 12th) 


That the new Canadian tax programme is 
a radical measure, and that it is not based 
on a scientific study of production or con- 
sumption, is the opinion gaining ground 
throughout the Dominion from day to day. 
That it is manifestly unfair, is demonstrat- 
ed by instances innumerable. In one case 
a local dealer operating on a small scale, 
paid, under the initial business tax levied by 
the Government, a sum of $6,000, while large 
manufacturing plants in the same line of 
business and with millions of capital con- 
tributed not a single penny to this tax. 

Two Cases in Point. 

Still another instance demonstrates the 
ill-effects this new tax legislation is having 
in the matter of increased output: A well 
known manufacturer in Montreal, operating 
a moderately large manufacturing business, 
paid out $8,000 under the previous tax. Ask- 
ed how the latest taxation method would hit 
him, be said: "Well, it will make no differ- 
ence. I will not pay any more than under 
the previous tax law." 

"How is that?" he was asked. 

"Well, what is the use of having my men 
work longer hours, increasing my operating 
charges, and yet not make any more than I 
did last year?'' 

It may seem remarkable, but this idea 
prevails in an astonishing degr-ee through- 
out local trade circles, and if carried into 
effect, it needs no great amount of explana- 
tion to figure out the r-esults as regards less 
production, which means less profits, and, 
of course, less wages. 

(From the Financial Times, May 5th) 


Correspondent Endorses Financial 
Times" Article and Points to Cases 
Where Success Has Been Earned 
Only After Strenuous Effort — 
Wages Will Decrease and Labor 
Lose Great Opportunity. 

Editor, Financial Times. 

Sir, — Permit me to congratulate you on 
your very comprehensive criticism of the 
new excess profits taxation, and to allow 
me a little space in your valuable paper to 
express some of my own opinions. In the 
first place, what do excess profits mean, 
and what is the meaning of a tax on excess 
profits beyond reasonable bounds, if it is 
not a tax on enterprise? It must be remem- 
bered that the successful construction of 
any business, and the piloting of this busi- 
ness through the breakers that from time 
to time are encountered in industrial life, 
requires nowadays the application of a 
talent bordering on genius. 

In our time there is no such thing as a 
business carrying itself along, like ice 
floating down a river, or a toboggan shoot- 
ing down a slide. It requires constant and 
continual thought and enterprise. Modern 
science, coupled with ability, makes for 
success in business life, which is nothing 
more nor less than a profitable return on 
money invested, and the greater the ability 
in handling the business the greater the 

Government Shares tfot in Losses. 

Now, granting this, where do we arrive 
on the question of this taxation? Take fpr 
instance the Laurentide Company, one of 
the largest and prosperous concerns of the 
country. When this concern went into the 
power development business, which meant 
an expenditure of from seven to eight 
million dollars, it came upon a critical 
period with the beginning of the world war, 
and had its resources not been husbanded, 

and had the men behind not been big 
enough, disaster would have followed, with 
its consequent loss to thousands who had 
invested their money in the company. Now 
you might say with all warrant that it was 
a certain genius that carried this company 
to its present splendid condition, where fail- 
ure might have been disastrous. The Gov- 
ernment now will take a very considerable 
proportion of this company's earnings, but, 
and this is an important point, it would have 
had no share in the loss. 

Take another instance, the milling com- 
panies that own grain elevators aU over the 
country, to which the farmers are continu- 
ally bringing wheat, which is sold to the 
companies. This grain is bought for the 
reason that the companies must always have 
a large supply of wheat on hand; it is their 
business to anticipate the course of prices, 
and if to-day one of these companies has 
say 2,000,000 bushels of wheat on hand at 
$1.50, with wheat selling at $2.50 to $2.80 it 
will have made over $2,000,000 on which it 
must pay the Government a very large per- 
centage. But these companies have been 
buying wheat right along at gradually ad- 
vancing prices — they must keep supplies 
well ahead — and if the war were to end 
suddenly, or a year from now, and prices 
should drop $1.00 to $1.50 (and there is 
every likelihood of such an occurrence), 
then it is only fair to ask would the Gov- 
ernment guarantee excess losses? And 
again, it is to meet these losses which are 
bound to come from time to time that the 
companies need a large reserve, the latter 
being an absolute essential of the milling 

Other instances may be quoted, such as 
the C. P. R. Here is a company, which,* 
through the genius of its management, has 
been husbanding its resources, and when 
the critical period came along, at the be- 
ginning of the war it weathered the storm, 
while otner large transportation companies 
went to the brink of disaster. Now this 
company will have to submit to excessive 
taxation, which amounts to nothing less 
than a tax on enterprise. 

Make Taxation Reasonable. 

No one will object to a fair taxation, dis- 
tributed on a proper basis, but to take a 
large percentage of the earnings of a suc- 
cessful enterprise is to hinder industrial 
advancement. It must he borne in mind 
that such taxation will result, if not in 
a cutting down of expenses, at least in a 
tightening, of the purse strings in this con- 
nection, and here the worker suffers be- 
cause of the fact that his salary is held 
stationary, where otherwise he would bene- 
fit by the steady progress of his particular 
company. Yours, etc. 



(From the Financial Times, May 12th) 


They Simply Won't Stand For The 
Amendment — Canada's Manufa 
000 of Goods Against $249,000,0 
Thomas White, While Trying to 
Wheat, is "Bucking" a Faction T 
ada's Trade Prosperity — Fina 
to a Test Before Full Jury of Re 
and Even Wage Earners- 

Iniquitous Excess Profits Taxation 
cturers Exported in 1916, $242,000,- 
00 of Farmers' Products — Thus Sir 

Appease The Farmer With Free 
hat Has a Full Half Interest in Can- 
nce Minister's Real Capabilities Put 
tailers, Wholesalers, Manufacturers, 

(By T. Kelly Dickinson.) 

Time is flying. And as yet we have had 
no indication from Sir Thomas White that 
he is prepared to recognize the sincere and 
legitimate opposition to his budget amend- 
ment — except, perhaps, a shrug of his broad 
shoulders. A shrug of the shoulders, 
however, is not good enough. This is too 
serious a matter in Canada's business affairs 
to warrant it being put to one side without 
proper consideration of criticism. The 
whole of industrial Canada (and this in- 
cludes the smaller merchants, as weli as the 
manufacturers) is at one in the determina- 
tion that a modification of this 50 and 75 
p.c. profit tax must be made without delay. 

Sir Thomas White must now see what a 
fatal mistake it will be, for Canada's im- 
mediate and future trade position, if his 
taxation is put into law. Seeing this, he 
must not allow an overwhelming dignity to 
stand between him and the future welfare of 

Our Prhle in Exports. 

I do not propose in this article to discuss 
the injury which this latest profit taxation 
wiU inflict upon Canada. That has been 
thoroughly covered in previous articles, and 
has been amply demonstrated by the evi- 
dence of material and immediate curtail- 
ment of industrial activity in every business 

Canada has been proudly pointing to her 
excess exports over imports of the past two 
years. Canada will know, when this export 
business has been pushed down to the level 
of imports by taxation, precisely where to 
place the responsibility. Such responsibil- 
ity will be placed upon the head of the Min- 
ister of Finance who was found to have a 
lack of vision and refused to consult an 

The Minister of Finance claims that he 
"needs the money." We aLl need the money, 
but that fact does not impel us to waylay the 

first respectable gentleman who comes in 
sight and command him to "stand and de- 
liver." That sort of thing is not done m 
polite society, not even in impolite politics 
and it certainly cannot be done in Canada ' 

If the revenue is still below requirements 
it would seem that the only logical source 
to draw upon would be a tax on incomes 
over $10,000 a year, followed, if necessary, 
by a graduated scale downward. It is ab- 
surd to claim that the cost of the machinery 
to collect this tax would be prohibitive, 
when the cost of the present proposal would 
represent scores of millions of dollars lost 
to the country. 

Squarely and Fairly. 

We want to look squarely and fairly at 
this question; we want to get out of our 
heads that this 50 and 75 p.c. tax will be re- 
stricted to munition companiesj we want to 
realize that the small companies with limit- 
ed capital (that have never been heard of 
on the stock exchange) will pay more into 
the state treasury than the companies with 
larger capitalization. When we fully rea- 
lize these facts we will realize that the 
country's productive capacity is jeopardized 
and that the development of our inexhaust- 
ible natural resources will be checked, just 
at the critical moment when we have open- 
ed up a world-market for our industrial pro- 
ducts, instead of selling our raw material in 
bulk to be manufactured in foreign coun- 

Will Even Reduce Revenue. 

It is imperative that Sir Thomas White im- 
mediately declare an absolute withdrawal of 
his budget amendment. The original ex- 
cess profit tax of 25 p.c. over 7 p.c. will ac- 
tually give him more revenue from business 
profits than he can hope to secure by a form 
of taxation that will reduce the buying 
power of the people and thus bring about a 
corresponding decrease in the output of 
those companies that have been contribut- 


ins on the 25 p.c. taxation basis. Let us 
net lose sight of this eventuality. 

Sir Thomas White is on trial, the jury be- 
ing comprised of the people of Canada. Let 
mo remind him that for the twelve months 
ended March 31, 1916, Canadian manufactur- 
ers exported no less than $242,000,000 of 
goods, compared with $249,000,000 exported 
by the agriculturalists. The manufacturers 
therefore can justly claim a clear half in- 
terest in the prosperity of the country, be- 
sides being an important factor in the con- 
sumptive market for the farmers' product. 
Those comparative figures show conclusive- 
ly that it is not wise to discriminate against 
a section of Canada's business population, in 
the belief that that section is a negligible 
quantity. It is not a negligible quantity. 
So far, this section has given the Finance 
Minister its whole-hearted support. It has 
believed in him, but if the Minister's states- 
manship cannot stand the test of a situation 
bristling with difficulties, his past successes 
will be attributed to the fact that they were 
built upon the success of the country and 
not upon any special attribute of individual 

Political Opponents "Lying Low." 

Sir Thomas White is at the cross-roads of 
his career. His political opponents know 
it, as do his friends, but his friends frankly 
warn him, whereas his political opponents 
are "lying low," in ambush, ready when our 
imports again overtake our exports, to put 
the searchlight of publicity upon a gigantic 

Sir Thomas White may be under the im- 
pression that he has' won the farmer with 
his Free Wheat, but the farmer merely has 
tasted blood, and Free Wheat alone will not 
satisfy his appetite for more concessions. 
Will the Minister fall between the two fac- 
tions? He cannot play "both ends against 
the middle" in this case, as the "middle" is a 
chasm of political oblivion. 

This may be straight talk, but the econo- 
mic situation is critical. Canada will re- 
fuse to have its industrial house brought 
about its ears, by the whim of one man 
whose capacity for unerring seamanship has 
yet to be tried in foul weather. 


(Toronto Saturday Night, May 12, 1917) 
Sir Thomas White must step with care or 
he will kill the goose that lays the golden 
egg. There is no disposition among Cana- 
dians to hide in a shell hole when the tax 
gatherer looms into view, but at the same 
time there is a limit at which taxation must, 
stop or else enterprise and industry will be 
stifled. Take for example a company with 

a capital of $100,000 upon which a profit of 
50 per cent, is made on the year's business. 
According to the schedule as laid down by 
the Minister of Finance the Government will 
get $27,000 of the $50,000 profits and the 
owners of the business $23,000. Or take 
another example, that of a private firm with 
a capital of $30,000, upon which is earned 30 
per cent, or $9,000 per annum. Of this sum 
the Government takes in taxation $3,375 and 
the owners get the balance, which is $5,625. 
As the earnings increase the Government's 
share ever becomes larger, which is right 
enough up to a reasonable point, but when it 
comes to a Government taking $139,500 in 
taxation and leaving the owners of a busi- 
ness $60,500 it savors of confiscation rather 
than taxation. It is not at all beyond the 
realm of possibilities that a concern which 
made a hundred per cent, profit on its in- 
vested capital this year, might not be mak- 
ing a red cent a year hence. A man does 
not invest his capital in a. new enterprise 
with the idea of obtaining only 7 or even 
10 per cent. The possibilities of the non- 
success of any new business venture must 
be considered, and in considering it the in- 
vestor rightly enough demands more than 
the current first mortgage rate which can 
be obtained without any risk to speak of. 
This feature should be very carefully weigh- 
ed in any possible reconsideration of the pre- 
sent bill. Capital, like most things, follows 
the line of least resistance. If we are pre- 
pared to build a wall against capital by con- 
fiscating seventy-five per cent, of a con- 
cern's profits, then we must be prepared to 
see this capital slip off to other fields where 
it will receive less harsh treatment. 


The Wall Street Journal comments as fol- 
lows regarding retroactive taxation, which 
is a feature of the Canadian business pro- 
fits war tax act: — 

"It is to be hoped that Congress will not 
resort to retroactive measures in providing 
revenue, even for the extraordinary require- 
ments of war. Such form of taxation of in- 
come would be vicious, destructive of in- 
dustry and confirmatory of investments, to 
say nothing of its constitutionality. 

"It would be class legislation and indi- 
vidual proscription, because its burden 
would vary in every instance from what it 
was in every other instance. Uniformity 
would be impossible. It would be -s tax not 
collectible out of the thing taxed. There- 
fore, it would have to be taken out of some- 
thing else, probably new income, and would 
then be a double tax. To impose taxation 
on what has been spent or invested is not to 
tax income. 

(Printed and issued by The Financial Times)